This chart shows why everyone is scared about China's economy

A flag covers the face of
an honour guard during a welcoming ceremony for the visiting
Mongolian Prime Minister Norovyn Altankhuyag outside the Great
Hall of the People in Beijing October 25, 2013.REUTERS/Kim Kyung-Hoon

China's economy is not in a good place, and a chart just
published by Oxford Economics puts that in perfect perspective.

China's broad money growth — which includes physical currency,
some sorts of deposits in banks, and some sorts of very liquid
securities — has slowed to the point at which it is actually
slower than that of the US. Growth in money supply is definitely
not perfect, but it provides a rough measure of economic activity
in the medium term, so acceleration in the US would generally be
a good signal, and the slump in China is a very bad thing.

That's because with much slower growth, China is going to
find its growing
debt mountain much more difficult to handle. As renowned
Chinese economy expert Michael Pettis says, much slower growth
means that "those bad habits have become brutally
expensive."

Here's how it looks:

Oxford Economics, Haver
Analytics

It's a pretty amazing occurrence. It has happened just three
other times since 1986, and "all three episodes were parts of
signals of an eventual acceleration in US GDP growth and a
slowdown in Chinese activity."

China is aiming for 7% GDP growth, which would be the slowest in
nearly a quarter of a century, but even that might now be too
optimistic. Here's Oxford Economics:

The weaker Chinese numbers are certainly not consistent with
'around 7%' output growth in the medium term. Rather, the weaker
M2 (money supply) growth, if sustained, supports our forecast of
Chinese medium-term growth slowing to around 5.5% or possibly
even lower. It is difficult to see how this would happen without
the Chinese monetary authorities attempting to turn the trend by
easing monetary policy.

Oxford Economics adds that China's M2 (a broad money measure) has
risen about 2.5 percentage points faster than nominal GDP (which
includes inflation) since 2010, so growth of 7% would suggest
growth of about 4.5% nominal growth, even lower once inflation is
stripped out.

Even the eurozone, a pretty reliable symbol of stagnation over
recent years, may surpass China in the months ahead.